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How Romney’s Tax Plan Would Encourage Offshoring

Mitt Romney has been criticized for the mendacity of his attacks on the auto bailout and, more recently, for his baseless claim that Chrysler was planning to move production to China.

But his attempt to rile voters about the offshoring of jobs is all the more deceitful when you consider that his tax plan would actively encourage companies to move jobs abroad. Mr. Romney wants a so-called territorial tax system, in which the overseas profits of American corporations would escape United States taxation altogether. That would be a big incentive for multinational companies to shift jobs and investments overseas. It would also be a huge giveaway to multinationals – which, not surprisingly, are supporters of the switch to a territorial code.
Under current law, taxes on foreign profits of American firms are deferred until the companies repatriate the money to the United States. Upon repatriation, the profits are taxed, but with a credit given for any foreign taxes paid on the profits, so there is no double taxation. That is already more than generous tax treatment. But a territorial system would go one better, by declaring that overseas profits that are currently tax-deferred would instead be tax-free, forever.

So Mr. Romney’s anti-Chrysler ads not only distort what Chrysler is doing. They also decry precisely the policies that his tax plan would provoke: moving jobs off shore, hand in hand with tax avoidance.

For the record: President Obama opposes a territorial approach. Among other policies, he has proposed a minimum tax that would discourage companies from moving overseas by requiring American companies to make up the difference between their foreign and U.S. rates.